The Stainless Steel MMI dropped five points this month as nickel prices fell by 10%. Despite the increase in stainless steel surcharges this month, the sharp fall in nickel prices drove the index lower.

Nickel price volatility has increased over the past few months. Prices currently trade in a +/-$3,000/mt range. Strong demand in the stainless and battery sectors and heavy trading volumes have driven nickel prices.

Price volatility is being driven by increased activity in nickel transactions. Nickel has become one of the “hottest metals” due to its demand in electric batteries. Therefore prices and trading volumes have shifted:

Source: MetalMiner analysis of FastMarkets

Trading volume for LME nickel remains strong, and does not reveal a downtrend. Although the red lines in trading volume above seem to signal heavy selling volume, prices do not slip together with volume. Therefore, the outlook for nickel remains bullish.

In bullish markets, buying dips also present good opportunities to buy some additional volume.

Domestic Stainless Steel Market

Despite the slower momentum of the Stainless MMI, domestic stainless steel surcharges increased again this month. Surcharges reached May 2015 levels and remain far from last year’s lows (under $0.4/pound).

Chinese chrome metal prices and the ferrochrome prices demonstrate a market anomaly. Ferrochrome (FeCr) is a chromium and iron alloy, containing 50% to 70% chromium by weight. Ferrochrome price increases in the May-September 2017 period appear sharper than the chrome metal price increase.

Source: MetalMiner data from MetalMiner IndX(™)

Therefore, iron ore may be the culprit increasing the ferrochrome price. When looking at the iron ore chart, readers may see that iron ore prices appeared higher during Q2 and Q3.

Source: MetalMiner analysis of Trading Economics

Despite the sideways trend during the last few months, iron ore prices increased in November and have continued their uptrend in December too. Therefore, ferrochrome prices may continue to increase driven by higher prices in both raw materials (iron ore and chrome metal).

India overtook Japan in 2016 and serves as the world’s second-largest stainless steel producer. Indian stainless steel output continues to expand and is forecasted to reach 4 million tons in 2018. Strong domestic demand from both the automotive and construction sectors has driven Indian growth.

The European domestic 304 stainless steel remains flat due to weaker domestic demand.

What This Means for Industrial Buyers

Stainless steel momentum appears slow, just as it does for all the other forms of steel. However, due to nickel’s high price volatility, buying organizations may want to follow the market closely and buy in the dips. To understand how to adapt buying strategies to your needs, dive deeper into our Monthly Metal Buying Outlook or you can take a free trial now.